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ETF Specialist

A Low-Tech Index Offering Exposure to the High-Tech Sector

The case for the tech-heavy, large and liquid PowerShares QQQ ETF remains a strong one.

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Investors craving a big helping of large-cap growth stocks with a strong tilt toward the technology sector can consider  PowerShares QQQ ETF (QQQ). A perennial favorite among U.S. large-cap growth investors, QQQ is the sixth most actively traded U.S. exchange-traded fund and has the sixth-most assets of any U.S. ETF. QQQ also offers exposure to leading Nasdaq-listed consumer discretionary firms (18% of assets) and biotech firms (15% of assets) and tracks the cap-weighted Nasdaq-100 Index, which includes the 100 largest nonfinancial stocks in the Nasdaq Composite Index. Given its narrow sector focus, this ETF would work best as a satellite holding in a diversified portfolio.

This is a high-quality portfolio with a mega-cap tilt, with more than 87% of assets invested in large-cap companies and more than 93% of assets invested in companies with Morningstar Economic Moat Ratings, those that Morningstar's equity analysts deem as having sustainable competitive advantages. However, given this fund's sector tilts, it is more volatile than a broad portfolio of large-cap stocks. For example, over the past 10 years, it has had a volatility of return of 18.0% compared with 14.6% for the S&P 500.

Robert Goldsborough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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